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Mr. Willis: I am happy with that.
Q 204Simon Hughes (North Southwark and Bermondsey) (LD): Welcome. It is good to see you and thank you, Jonathan, for your submission. May I first probe the question of the people involved, other than pensioners, before addressing methods of ensuring that people get the best or fairest deal? At the moment, we have systems that generally support people who get a benefit from the state. They are either pensioners, over pensionable age or they qualify because of income support and so on. Have you all thought through the categories that should be included? We will need some precise answers to that first part of my question.
Secondly, some people are entitled to benefits or entitlement, but they have to claim them, which has always been a problem, because the benefit take-up has never been anything like the number of people entitled. How do you deal with that?
Finally, are there people who are just under pensionable age but, for pride and other reasons, do not claim benefits, are just above the limit and should be eligible? People have talked about disability, cancer patients and other categories. Will you help us as precisely as you can as to the groups that we should include and how?
Jonathan Stearn: Yes, we have done some work on that. The issue that we have with fuel poverty is to try to get precision, because we actually do not know the energy efficiency of every house in the country. We do not have that information, so we are lacking a vital bit of information to do this properly.
Simon Hughes: Except we know that 99 out of 100 houses are not energy efficient.
Jonathan Stearn: Yes, we do. Whatever you do is going to be a bit of a proxy. We also think that there is an issue with the definition of fuel poverty. For example, if you have information that looks at basic income, which leaves aside payments for housing benefit—that never enters a person’s pocket at all—you will find that 41 per cent. of lone parents come under that classification of the fuel poor.
The group that we particularly focused on was those eligible for cold weather payments. Some 37 per cent. under those criteria are fuel poor. It is not a bad proxy compared with the equivalent for households receiving pension credit, which is 36 per cent. So we think that cold weather payments are not a bad proxy. They pick up those who are income poor, those on a pensioner premium and disability premium, and those with disabled and young children, so we think they are not a bad proxy. We would add those children of school age with parents who are on low incomes and benefits. As a core, we think cold weather payments are not a bad proxy to use.
Q 205Simon Hughes: Just before Jenny comes in, you would say that the starting point should be the current definition of those entitled to cold weather payments but, Jonathan, you would add some other potential categories.
Jonathan Stearn: We would add people in households with benefits for children of school age, because that is the one group not included in the mix in relation to cold weather payments.
Jenny Saunders: We have also looked at this carefully and believe that the existing categories of households eligible for cold weather payments are the target group for the main rebate scheme. I take your point that there are a number of people who are not receiving all the benefits to which they are entitled. There is still room for the voluntary arrangements that companies have with other charities to get to those people who have particular health problems—you mentioned cancer—or other health-related issues that make them more vulnerable and may not be picked up as easily in the system. If we retain some of that flexibility within the mandated programme, we can be more confident that through voluntary sector partnerships or agreements with local authorities or other statutory bodies—such as npower’s Health Through Warmth scheme—we might get to people who are in need but outside the main state system.
Jonathan Stearn: There are two points. On your point about non-take-up of benefits, it is worth reminding ourselves about how much is left—although I know it is not really—in the Treasury coffers every year as a result of that. Billions of pounds are unclaimed every year, which is worth remembering when we talk about how much schemes like this might cost.
It is also worth paying attention to the potential to encourage take-up by having a mandated scheme. We know, for example, from Warm Front that people who are eligible for but not claiming benefits to which they are entitled come back to Warm Front having claimed those benefits. Warm Front acts as an incentive to claiming benefits and the same could happen with this, if we had a mandated scheme. It could be worth a lot less than the benefits, but could act as a trigger in the same way that Warm Front has.
Q 206Simon Hughes: My last question on this is, would you, as well placed organisations, seek to work out those other categories that might justifiably be entitled? For example, we have had submissions from Macmillan—a fantastic organisation and we know what they do—but cancer patients in their 40s or 50s cannot be the only ones who are more vulnerable and need to be protected and who may still carry on working part-time, or whatever. Given that we are to have a secondary legislation round, would you be willing and able to come to a common view with the charities? Because it would be far better to have consensus rather than lots of negotiation and rather invidious discrimination later on, when people with some conditions qualify and others do not.
Jonathan Stearn: The answer is yes. We at Consumer Focus have been working directly with a range of charities, including Macmillan, to come to common agreements on fuel poverty. For example, the drive on energy efficiency was supported by Macmillan, Age Concern and other organisations, all of which saw it as a key way forward. I am sure that by working in coalition with that group we can come to common agreement.
We know the difficulty EDF had, for example. When it initially set up its social tariff it was not sure, so it allocated groups of customers by postcode, based on a matrix that it had worked out. It thought those people were more likely to be in fuel poverty than other customers. It has had to find proxies, and because of the definition of fuel poverty we will still have to have those proxies that people work to. But there is no doubt that people on pension credit are in severe financial hardship, and they are vulnerable because of their age. They are a good category of people for us to be helping.
Q 207Simon Hughes: Thank you. May we just go on to method of supporting people? I have two questions. One is a specific question that I would like you both to answer, and the other is about your advice as to what methods will work. The specific question is whether there should be an end to the right of companies to charge differently depending on the means of payment. Should we simply say that it will be the same charge whether you pay by cheque, online or through a prepayment meter? It would be very simple and very fair. It does not matter if you also buy gas from the same person you buy your electricity from—that will not give you an advantage. If you are buying electricity, however you pay, you pay the same rate. Do you support a proposal that we have a single rate of payment for that product, irrespective of method of payment?
The wider question is: what is your advice as to the best way of giving support? Is it that the lowest tariff should be what the company has to offer to everybody in this category, and should that be part of a package that reduces the tariffs from the 4,000 that there are at the moment to a very limited number that the company is allowed to charge? We could legislate and say that you can only have five tariffs, for example, or we could tell Ofgem that that is what companies have to do. I am concerned that we have a ridiculously complex system, and we discriminate against people who pay by the old-fashioned methods by which poor people pay. I want to end that. How do we get that?
Jenny Saunders: I can start on that. I think that when we were looking at the definition of social tariffs some time ago, it was that it should be irrespective of the method of payment. I spotted your amendment to that effect, and I think that that is something about which we are very exercised. There had been an increasing differential between the different methods—online, direct debit and prepayment—and at the worst it was more than £500 between the best and worst deals. It took us a lot of persuading of Ofgem for it to intervene, because it felt that the competitive market was still the right route, and that if people knew that if they switched between companies they would get a better deal, they automatically would. We saw, and the companies saw, people switching away to a worse deal. We were told by EDF that 50 per cent. of people who switched away from what it knew to be its cheapest tariff moved to a worse deal.
There is no doubt that the current array of tariffs is very confusing and people get into a muddle, and it is very difficult for advice agencies to know what is going to be best for different customers. We did get into a big tangle over this. It would be nice to have what you are proposing, but I suspect that what we will be limited to is the European legislation, which means that prices have to be cost-reflective now. So there will be some differential. Having recognised that differential, whether you can then use the social tariff to address that and—are you following what I mean? I’m sorry it’s a bit muddled. We have to simplify the tariffs and we have to simplify the advice that we are giving out to people.
Q 208Mr. Willis: I am totally confused by your answer. I am sorry. I am not being disingenuous. Are you saying to Simon Hughes that European law would prevent it being stated in this Bill or in secondary legislation that all companies must offer their lowest tariff available as part of their response to the fuel poor?
Jenny Saunders: No. Ofgem made it clear that within its existing duties—these won’t change—they have special duties for the care of vulnerable customers, so they can do this.
Mr. Willis: So we could have that on the face of the Bill?
Jenny Saunders: Yes.
Mr. Willis: You said we couldn’t earlier.
Jenny Saunders: As a general issue, we have to have cost-reflective pricing. But we can tackle the disadvantage that that might bring as well through this proposed legislation. The question is how many people do we really want to help through this mechanism? There are over 5 million households in fuel poverty; we cannot help all of them through this. They can’t all get access to a social tariff without that cost coming through into quite a large amount of money, which will be passed on to all other consumers. It is a matter of being careful as to how much these costs will amount to. I know that you’ve done some work on that, Jonathan.
The Chairman: We are running into the danger that half of our agenda will be lost. Can I ask Simon to focus on a final question and could I also ask the witnesses to try to give us some concise answers?
Jonathan Stearn: On the point about making charging the same, the issue of cost-reflectivity is the one that Ofgem would raise. Pricing generally has to be cost-reflective. We would have an issue with what you actually mean by cost-reflectivity. As I said at the beginning, there can be a £250 difference between what you’d pay to the same supplier if you were paying through direct debit online and what you would be paying through a prepayment meter or, indeed, a quarterly bill. We have had a lot of impact on prepayment meters and have managed to bring the charging of those down to levels similar to quarterly payments, but there still can be a £250 difference between that and direct debit online. Certainly that is detrimental to the groups we are concerned about here. We cannot just say to people, “That’s the market place. You haven’t got a computer. You haven’t got a bank account. Well, tough.” We need to move forward from that and have policies that recognise the detriment that those consumers are facing. Yes, that means you can delve into the issues of what cost-reflectivity is.
There is an interesting example in Northern Ireland where semi-smart metering was introduced. It meant that prepayment became very popular. The price differences between that and any other cheaper forms of payment are very small because there is investment. That is the issue behind cost-reflectivity: what cost are you reflecting? If you don’t invest in something then the costs of supplying it on a prepayment meter will be very high. If you do invest then the costs over time can go down a lot. That is why, to be honest, the issue of smart metering is very important here. Again, we are really pleased. Energy Watch argued for the introduction of smart metering for a long time so we are really pleased that every home will have smart meters. But it is absolutely essential that every home has the ability to have prepay as part of their smart meter option for both gas and electricity. That would change the marketplace quite considerably; measures such as that can make a difference.
We still have differences between the amount that people on low incomes pay through prepayment or quarterly bills and what you get online and with direct debit. That is where the argument for keeping the social tariff comes in. The social tariff would mean, no matter how you pay, that you would be paying the lowest charge. It means that, if you happen to be one of the minority of fuel-poor lucky enough to be on direct debit, the amount you would get back would be less than if you were on a prepayment meter. It means that everybody who we have recognised as needing support would get the cheapest deal from their supplier.
The Chairman: Paddy, do you have a supplementary question?
Q 209Paddy Tipping: Yes. A little while ago, you used the words “Treasury coffers”. Is it not the case that winter fuel payments last year cost £2.7 billion, and that only 12 per cent. of people who receive them are in fuel poverty? Is that a sensible way of going forward? Should we not use that money to support new mandatory social tariffs?
Jonathan Stearn: It is worth remembering the history of the winter fuel payment, because I had some involvement. It started off as a private Member’s Bill when I worked for Age Concern. We were trying to give support to old people in the winter to give them confidence to keep warm. The word “fuel” came into it, but the idea of the winter payment was to give older people courage and belief, and to get around the whole issue of the lack of take-up of benefits. We knew that those with the greatest need were not claiming the benefits that they were entitled to, and the universal winter payment meant that we could give confidence to older people to keep warm in the winter.
The concern about losing the universal aspect of it and bringing it back to means-testing is that those who need it most are inevitably going to be the ones who miss out. In some ways you could look at it the other way around, in terms of doing top-end means-testing where those on the higher rate of tax, for example, do not get it or are not eligible. There might be ways you could play that. Personally, however, I would be very concerned about losing the universal nature. Its very aim was to reach those older people who do not claim the benefits that they are entitled to because of stigma, lack of knowledge and so on, and they would lose out. That would be my concern.
On the money left in the coffers, it is clear that, if we had an effective take-up campaign, the Treasury would have to find the money, which is in the region of £10 billion. In some ways, it is worth thinking how that money could be used with these sorts of schemes to give support where it is needed.
Jenny Saunders: I agree. I do not think that we should abolish winter fuel payments. There are certainly some people who are not in fuel poverty who receive a high percentage, but it is a known additional amount that people can rely on and they know that in advance. In fact, we would like to see the eligibility extended. Households that receive cold weather payments and families on low incomes with young children should also receive it. We have been asking for that for a long time.
We used to have something called heating additions, which were abolished in 1998. They provided around half a billion pounds’ worth of assistance to people who were living in the worst housing. That was linked to people’s different benefit payments and it went. I think that what is in the Bill is an attempt to recognise that pensioners on benefits need additional support and help. The energy supply industry is one means of doing it, but that should not be at the expense of giving public support as well.
 
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